Fintechs have shifted from trying to disrupt banks to recognizing the value of partnering with them.

“In the early waves of fintech, the idea was that fintechs would come for banks,” Jeff Flynn, director at Citi Ventures, the venture arm of $1.7 trillion Citi, said during the Bank Automation News webinar “Emerging fintechs: New technologies you need to know now” on April 8.

Watch the webinar here.

“But the verdict is in — partnering with banks is probably a more compelling way to build a sizable, enduring company.”

— Jeff Flynn, director, Citi Ventures

For example, peer-to-peer payment fintech Zelle shut down its app on April 1, citing high-scale integration of the platform into the banks’ mobile apps.

While some fintechs succeed in niche or consumer-focused areas, most now see greater long-term potential in collaboration rather than competition, especially given the staying power of established banks, Flynn said.

Fintechs recently joining Citi Ventures’ portfolio include:

• Regulatory compliance platform Norm Ai;
• Cybersecurity service provider Lakera AI; and
• Wealth and estate management service provider wealth.com.

Innovation allies

Banks shouldn’t fear fintechs as rivals either, Russell Barrett, executive vice president and chief operating officer at Morristown, N.J.-based Valley Bank, said during the webinar. In fact, the “overwhelming majority” of fintechs are allies to banks, especially those with smaller development teams, he said.

“These are our partners,” Barrett said.

Smaller, community banks often rely on a limited set of legacy vendors, creating high concentration risk, so fintechs provide a way to diversify and bring innovation to institutions that lack internal resources to solve complex challenges on their own, he said.

“At Valley … we have the right size to be able to explore on one side and obviously integrate them into the operations on the other. We believe we’re in the sweet spot.”

— Russell Barrett, EVP and COO, Valley Bank

Through its venture fund, Valley Ventures, Valley Bank invests in fintechs used by the bank, including:

• Real estate software platform Built;
• Check fraud prevention software provider Refine Intelligence; and
• AI-powered analytics and reality capture platform OpenSpace.

Fintechs take on risk

While their budgets may keep some banks from developing cutting-edge tech, risk can be the bigger obstacle — and that’s where a fintech comes in, Brandon Min, founder and chief executive at AI deepfake detector Herd Security, said during the webinar.

Traditional banks may have the right mindset for innovation but aren’t operationally ready to execute, and that’s not unusual, Min said.

“That’s true across any traditional business. Tech is meant to raise up other industries, if we’re doing our job right.”

— Brandon Min, founder and CEO, Herd Security

While leadership at many banks is forward-thinking, the challenge often lies in aligning operational capacity with strategic vision, particularly at larger institutions where it’s harder to shift momentum, Min said.

“There’s not necessarily a lack of desire or need,” he added, “but there may be a gap between where the business operates today and where leaders want it to go in the coming years.”

This is especially true for AI technologies, Kevin Green, chief operating officer at AI-powered decisioning platform Hapax, said during the webinar.

While financial institutions are eager to adopt AI, many aren’t sure how to implement it effectively at scale or how it fits into a long-term strategy, he said.

“There is an overwhelming desire to embrace the technology, be more innovative, identify opportunities to drive value,” Green said. “But this isn’t just about plugging in a point solution and hoping it works. This is a seismic shift.”